F OR P UB LIC AT ION



### U N I TED STA TES C O U R T O F A PPEA LS F O R T H E N IN T H C IR C U IT

I n Re : C EN TUR Y A L UMI NUM C OMPANY S EC U RI T I ES L I TI GATI ON ,
E RI C P ET ZS CHKE , individually and on behalf of all others similarly

situated; S TU AR T W EXL ER , lead plaintiff f or the Se c ur iti e s A c t c la ims ; C O RY M C C L EL L AN ; P ET ER A B R AMS ; C H R IS M C N UL TY , Plain tif

fs - Ap pe lla nts ,

v.
C EN TUR Y A L UMI NU M C OMPANY ; L OGAN W. KRUGER ; M I CH A EL A. B LESS ; S TEVE S CHNEI DER ; J OHN C. F ONTAI NE ; J A CK E. T HOMPS ON ; P ET ER C. J ONE ; J OHN P. O’B RI EN ; W I L L Y R. S TR OT HO TTE ; J A RL B ER NT Z EN ; C R E DI T S U I SSE S EC U RI T I ES (USA) L L C; M OR GAN S TANL EY & C O .,

Defendants - A

ppellees

. No. 11-15599

D.C. No. 3:09-cv-01001- SI

OPI NI ON

Appea l from the United States District Court fo r t he No rt he rn Di str ic t of

Ca lif or nia Susan I llston, Dist rict Judge, Pre sidingI N R E : C EN TUR Y A L UMI NU M C O

. 2

T he H o no rable Jam es K

. Singl et o n, Se ni o r U ni t ed Stat es D i st ri ct Jud ge * f o r t he D i st ri ct of A l aska, s i t t i ng by desi gnat i o n.

T hi s s ummary cons t i t ut es no part o f the o pi ni on of

t he cour t

. I t ha s ** b een p repa red b y co urt s t af f f o r t he co nveni ence o f

t he read er. Argued and Submitted Au g us t 8, 20 12 –Sa

n F ra nc isc o, Ca lif

or nia Filed January

2, 2013

B e fo re : Co ns ue lo M . Ca lla ha n a nd Pa ul J. Watf or d, Cir c uit J udg es, and James K. Single ton, Senior District J udg e. *

Opinion by

J udg e Watford

SUMMAR

Y **

Se c ur it ie s F r aud The pa nel af firmed the dismissal for la ck of statutory stand in g o f an a c ti o n u n d e r § 1 1 o f th e Se c ur it ie s Act of 1933, alleg ing that a company ’s s ecur ities were issued under
a mate ri a lly

fa lse or mis le a din g re g istratio n s tate me nt.

T h e p an el h el d

t h at t h e p l ai n t i ff

s d i d n o tad equ at el y

al l ege that their af

termar ket share s were trac eable t o a sec ondary offe ring in connec tion with which the compan y issued a pro s p e c tu s s u

p p le me n t t

r e a te d a s p art o f

th e c o mp any ’s
re g istratio n s tate me nt. The pa ne l he ld t

hat th e pla int if

fs ’ alleg ations did not giv e ri se to a re asonable infere nce that the ir sh are s we re tr a c e a

ble to t he se c on da

ry of fe ri ngbe c a

us eI N R E : C EN TUR Y A L UMI NU M C O

. 3 the alleg ations also wer e consistent with the shar es having
c ome fr om a

pr e vio us ly

iss ue d p oo l.

Th e p anel state d that the district court should have
a dd re sse d d e fe nd ants ’ m oti on to dis mis s un de r F e de ra l Ru le of Civil P roce dure 12( b)(6) , rath er t han Rule 12(b) (1), beca use fa ilure t o alleg e statutory standing results in failure to sta t e a cl aim on which re lief ca n be g rante d, not the absenc e of subjec t matter jurisdiction. The panel a ffirme d on the basis that dismissal was proper under Rule 12( b)(6)

.

CO UN SEL

F ra nc is M

. Gr e g or e k, B e tsy C. Manif old , Ra c he le R. R ic ke rt , and Patrick M. Mora

n (ar g ued), Wolf Halde nstein Adler F re e ma n & He rz L L P, Sa

n D ie g o, Ca lif

or nia , f or P lain tif fs

Ap pe lla nts

.
B ru c e A. Er ic so n, Ke vin M. F on g , a

nd Jef fr e y S. Ja c ob i, Pill s b ury Wint hrop Shaw Pittman L L P, San Fra ncisco, California, for

Def endants-A

ppellees Century

Aluminum Company , L og an W. Krug er, John C

. Fo n taine, Jack E. Th omp so n, Pe te r C. Jone s, John P. O’ B ri e n, W il ly R. S t ro t h o t t e, J ar l Be rn t z en , R o b er tE

. Fi s h m a n , C at h er i n e Z. Mann ing , St e ve Sc hn e ide r a nd Mic ha e l A . B le ss.
Robert P. Varia

n (ar g ued) a

nd Stephen M. Knaster , Orric k Her ring ton & Sutcliffe L L P, San Fra n ci s co, California , for D e f e n d an t s
- Ap p e l l e e s C r e d i tS u i s s e S e c u r i t i e s ( U S A ) LLC
and Mo rg an St anle y

& Co. L L C.I N R E : C EN TUR Y A L UMI NU M C O

. 4

S e c tio n 1 1 p ro v id e s in r e le v a n t p a rt: 1

I n c a s e a n y pa r t of t h e r e g i s t r a t i on s t a t e me n t , wh en such part be cam e ef f ect i v e , co nt ai ned an unt rue OP IN ION
WATFORD, Circuit J udg e:
Section 11 of the Sec urities Act of 1933, 15 U.S.C. § 77k, pr ov ide s a

c a us e of a c tio n to any

pe rs on wh o b uy s a

se c ur ity issued under a

materia lly

false or misleading reg is t ra t i on statement. Plaintiffs need not have purc h as ed s hare s in the of fe ri ngma de un de r t

he mis le a din g re g istra

tio n state me nt; those who purchased shares in the a fterma rket have standing to s u e provide d they

can tr ace their shar es bac k to the
r e le v an t o f

f e r in g

. Hertzberg v . Dignity Partners, Inc. , 19 1 F .3 d 1 07 6, 10 80 (9 th C ir . 1 99 9) ; Lee v. Ernst & Y oung, LLP , 294 F.3d 9 6 9, 978 (8th Cir. 2002). When all of a company ’s share s have been issued in a single offe ring under the same r eg istration statement, this “trac ing” requ i rement g ener ally poses no obstacle

. He rtz be rg , 1 9 1 F.3d at 1082. But whe n a company has issued shar es under more than one reg istration statement, the plaintiff must prove that her shar es wer e issued under

the alleg edly

false o r m isleading reg istration statement, rathe r than some other reg istration statement. Id. at 1080 n.4.

This case involves the latter sc enar io. Plainti ffs purcha sed shar es in defe ndant Century Aluminum C ompany at the end of

J anuar y 2009. I n Marc h 2009, s h o rt ly afte r Century Aluminum restated its cash f lows from oper ating activities, plaintiffs sued the company (and othe rs) unde r § 11. Plaintiffs alleg e t h at the shar es they purcha sed we re 1I N R E : C EN TUR Y A L UMI NU M C O

. 5

s t at ement of

a mat er i al f

act or om i t t ed t o s t at e a
m at eri al f

act requi red t o be s t at ed t herei n or necessar y t o m ake t he st a te m ent s t herei n not m i sl ead i ng, any pers on ac qui r i ng s uch s ecu r i t y ( un l es s i t i s proved t hat

a t t h e ti m e o f suc h a c q u isiti o n h e k n e w o f suc h un tru th

o r om i ss io n ) may, ei t her at l aw o r i n eq ui t y , i n any
cour t of

comp et ent juri s di ct i on, s ue [ s peci f i ed d ef end ant s]

.
1 5 U

. S.C

. § 7 7 k(a). issued under a

materia lly

false a nd misleading prospec tus supplement dated January 28, 2009, which is treated as pa rt of the company ’s reg istration statement for purposes of § 11. Cent ur y Al umi num is su e d th e pr os pe c tus su pp le me nt i n connec tion with a secondary o ffering of 24.5 million shares of the c ompany ’s common stock. When the se co ndary offe ring commence d, more than 49 milli on share s of Century Aluminum comm on stock wer e alr eady in the marke t. To preva il, plaintiffs would need to prov e t h at t he shar es they purcha sed ca

me fr o m t he pool of shar es issued in the
se c on dary offe ri ng , r a the r t ha n f ro m th e po ol o f p re vio us ly iss ue d s ha

re s.
Plaintiffs could satisfy

this requireme nt in one of two
wa y s. F ir st, pla int if

fs c ou ld p ro ve th at the y

purc ha se d th e ir share s directly i n t h e sec ondary offe ring itself. Such proof would obviously eliminate any questions a bout the lineag e of plaintiffs ’ shar es. Plaintiffs are not arguing he re, how ever , that they boug ht directly

in the seconda

ry offe ring ; they
conce de that they

purcha sed in the af

ter m ar ket. (The Third Amended Complaint ac knowledg es that plaintiffs did not buy their shar es direc tly

from the un d er wr i ters, and none of the plaintiffs boug ht shares at th e o ffering price of $4.50 per share .)I N R E : C EN TUR Y A L UMI NU M C O

. 6

See
, e

. g. , I

n r e W achov i a Equi t

y S ec. Li t i g. , 753 F. Su pp. 2d 326, 2 3 7 2

– 7 3 (S .D .N .Y . 2 0 1 1 ); I n r e Royal Ahol d N. V. Se c. & ER I SA Li t i g. , 3 5 1 F

. S u p p

. 2 d 3 3 4 , 4 0 1 (D

. M d . 2 0 0 4 ); I n r e See Bey ond Te chs

. Cor p. S e c . L iti g

. , 26 6 F. Sup p

. 2d 11 5 0 , 11 7 1

– 7 2 (C.D

. C al

. 20 0 3 ). S ec o n d , p l ai n t i ff

s co u l d p ro v e t h at t h ei r s h ar es , al th o u gh purcha sed in t h e af

termar ket, ca n be tra ced ba ck to the seconda ry offe ring

. See J

oseph v. W

iles , 223 F.3d 1155, 1 1 5 9 (1 0 t h C i r. 2 0 0 0 ). T h at i s ea s i er s ai d th an d o n e. It
wo uld re qu ir e pla int if

fs to t ra c e the c ha in o f t itl e fo r t he ir share s back to the seconda ry offe ring , starting with their own purcha ses an d e nd ingwi th s ome on e wh o b ou g ht d ir e c tly in the sec ondary

offe ring . Courts have longnoted that trac ing sh are s in this fashi on

is “ of te n im po ssi ble ,” be c a

us e “ mos t tradingis done throug h broker s who neither know nor ca re whether they are g etting ne wly

reg istered or

old shares,” and

“ many br ok e ra g e ho us e s do no t ide nti fy sp e c if ic sh are s w ith particula r ac counts but instead t reat the acc ount as havingan undivided interest in t he house’ s position.” Barnes v. Osofsky , 3 7 3 F. 2 d 2 6 9 , 2 7 1

– 7 2 (2 d C i r. 1 9 6 7 ). T h o u gh difficult to meet in some ci rcumstanc es, this tracing require ment is the condition Congre ss has imposed for g rantingacc ess to the “r elaxed liability require ment s ” § 11 aff ords. A b b e

yv

. Co m p u te r M e m o r ie s , Inc. , 6 34 F. Supp. 87 0, 87 5 (N. D. Ca l. 1 98 6) ; see Krim v. p cOrde r.com, Inc

. , 402 F.3d 489, 496 ( 5th Cir. 2005). The que stion raised by

this appeal is whethe r plaint i ffs have a dequate ly

alleg ed that their sha

res a re tra cea ble to the seconda ry offe ring . Plaintiffs argue that it was e noug h for them to alleg e, without more, tha t t h ey “purc hased Centur

y Aluminum common st ock dir ec tly trac eable to the Company ’s Seconda

ry Offe ring .” Some district courts have he ld t hat th is a lle g a tio n suffic e s, and bef ore Be ll A tla nti c 2I N R E : C EN TUR Y A L UMI NU M C O

. 7

Cor p. v . Two mb ly , 550 U.S. 544 (2007), and Ashcroft v. Iqbal , 5 56 U. S. 6 62 (2 00 9) , it pr ob abl y did . B ut Iqbal

and T wo mbly mo v e d u s aw ay f r o m a s y s te m o f

p ur e n o tice pleading

. See 5 Charles Ala n Wright et a l., Fede ral Prac tice
and Pr oc e dure § 1 21 6, a t 71 (S up p. 20 12 ). I n a dd iti on to providing fair notice , the complaint’s alleg ations must now sug g est that the cla im has at l east a plausible cha

nce of
s u c c e s s

. As Iqbal

put it, the complaint must alleg e “f actua l content that allows the cour t to draw the r easona

ble infer ence that the def

endant is liable f

o r t h e misconduct a lleg ed.” Iqbal , 556 U.S. at 678.

Th e le ve l of fac tua l sp e c if ic ity ne e de d to satis fy

thi s ple a din g re qu ir e me nt w ill vary de pe nd ingon

the c on te xt. Robbins v. Oklahoma , 519 F.3d 1242, 1248 ( 10th Cir. 2008). F or e xamp le , all e g ing that the pla int if f’ s sh are s are “ dir e c tly trac eable ” to the off

eringin question might well suffic e, eve n without “further

fac tual enhanc ement,” Twom bly , 550 U.S. at 55 7, wh e n all of the c omp any ’s sh are s we re iss ue d in a sin g le offe ring under a

single reg istration state m en t

. See J oseph , 223 F.3d at 1160. I n that context, allegingthat the plaintiff’s share s are direc tly trac eable to the offe ringin question states a claim “that is plausible on its face .” Twom bly , 550 U.S. at 570. No furthe r fa ctual enha nceme nt is need ed beca

use by definition all

of the c omp any ’s sh are s w ill be dir e c tly trac eable to the offe ring in question. See DeM aria v. Andersen , 318 F.3d 170, 176 ( 2d Cir. 2003).

W h en a c o mp an y

h as i s s u ed s h ar es i nm u l t i p l e o ff er i n gs under more than one r eg istration statement, howeve r, a g reater leve l of fac tual specific ity will be needed bef

ore a court c an r e a s o n a

b ly in f e r th a t s h ar e s p ur c h a s e d in the
a ft e rm ark e t are tr a c e a

ble to a pa rt ic ula r o ff e ri ng . M akin g thi s de te r mi n a ti o n is “ a c o n te xt- s p e c if ic ta s k th a t r e qu ir e s theI N R E : C EN TUR Y A L UMI NU M C O

. 8

revie wing court to dra

w on it s judicial experience and common sense.” Iqbal , 556 U.S. at 679. As noted ea rlier, experience and com m o n s ense te ll us that when a c ompany ha s off e re d s ha re s und e r m or e tha

n o ne re g istra

tio n s tate me nt,
a ft e rm ark e t purc ha se rs us ua lly wi ll not be a

ble to tr a c e the ir share s back to a

particula r off ering . Thus, in this case, pla int if fs ha d to alle g e fa c ts f

ro m w hic h w e c an r e a so na bly infer that their situation is differe nt. Standing alone , the conclusory all eg ation that plaintiffs “purc hased Centur y A lumi nu m c o mm o n s to c k d ir e c tl y tr a c e a b le to the Company ’s Seconda

ry Offe ring ” does not allow us to drawa rea s o n able infe renc e about a ny thing be cause it is devoid of fa c tua l c on te nt.

P l a i n t i f f s s ay t h e y h av e o f

f e r e d f u rt h e r f a c tu a l s p e c i f

i c i ty, and point to a lleg ations reg arding the dates on which and the price s at which they

purcha sed t heir shar es, as we ll as alleg ations conce rning the tradingvolume of Century Aluminum st ock on ce rtain date s. For ex ample, one of the plaintiffs alleg edly

purcha sed 5,000 shar es of Century Aluminum common st ock on January 28, 2009, at $4.56 per share , and 3,000 shar es on January 30, 20 0 9 , at $3.56 per share . (The c omplaint contains simil ar a lleg ations for the oth e r n ame d p la int if

fs .) I n a dd iti on , th e c omp la int a lle g e s a sharp spike in tra ding volume a nd a sharp drop in price of Century Aluminum’s stock betwee n J anuar y 28 and 30, 2009, movements that occ urre d, plaintiffs say , beca us e the underwriters of the seconda ry o ff ering “ beg an floodingthe marke t with Century

Aluminum common st ock that they had purcha sed in the Seconda ry Offe ring .”

Th e se a lle g a tio ns do no t g ive ri se to a r e a so na ble infere nce that plaintiffs’ share s are trac eable to the seconda ry offe ring

. Acc epting the alleg ations as true, pla intiffs’ share sI N R E : C EN TUR Y A L UMI NU M C O

. 9

could have come f

rom t h e s econda

ry offe ring , but the “obvious alt er n at ive explanation” is that they could instead have c ome fr om the po ol of pr e vio us ly iss ued shar e s. Twom bly , 550 U.S. at 567. Plaintiffs’ alleg ations are consistent with their share s having come from either sour ce. When fac ed wi t h two possible expl anations, only one of
w h i c hc anb e t r

u e a n d o n l y o n e o f

w h i c hr e s u l t s i nl i a

b i l i ty, plaintiffs cannot offer alleg ations that are “mer ely consistent wi th” the ir

fa vo re d e xplanatio n b ut are als o c on sis te nt w ith the alter native expl an at i o n. Iqbal , 556 U.S. at 678 (interna l quotation marks omitted). Som et hing mor e is nee ded, such as fa cts tending to exclude the pos sibili ty that the alter

native explanation is t rue, se e Twom bly , 55 0 U .S. a t 55 4, in o rd e r t o rende r plaintiffs’ alleg ations plausible within the meaningof Iqbal and Twom bly . Her e, plaintiffs’ a lleg ations remain stuck in “neutra l territory ,” Twom bly , 550 U.S. at 557, because the y do no t t e nd

to e xclu de the po ssi bil ity that th e ir sh are s c ame fr om t he po ol o f p re vio us ly

iss ue d s ha

re s.
Pla int if fs argue that th e a lle g a tio ns wi th re sp e c t to a t le a st
on e of the name d p la int if

fs , Pe te r A

bram s, are su ff

ic ie nt t o meet the plausibility

standard. A s to Abrams, t h e Third A m e n d e d C o mp l a i n t a l l e g e s t h a t h e d i r e c t e d h i s b r o ke r t o purcha se C entury Aluminum share s in the seconda ry offe ring and that his br oker executed the pur chase throug h Citi g roup, which at a ll releva

nt t i m es was involved in a joint venture with Morg an Stanley

(one o f t h e underwriter s of the seconda ry offe ring ) “wh er eby

the two entities wer e ind is ti n g u is h a

b le

. ” Pl a inti f

f s ar g u e th a t t

h e s e a ll e g a tions
cre ate a rea sonable infe renc e that at lea st Abrams’s shar es ca m e f ro mt h e s ec o n d ary

o ff er i n g.

E v en acc epting these a lleg ations as true, w e ca nnot
rea sonably

infer that Ab ra m s’s share s are trac eable to theI N R E : C EN TUR Y A L UMI NU M C O

. 10

se c on da ry of fe ri ng

. Th e a lle g a tio ns are a g a in c on sis te nt w ith that possibili ty , but the y are also consistent with C i t i g roup havingfilled the orde r with previously issued share s it was holding. Abse nt something mo re , such as a n alleg ation that C itigroup he ld on ly

share s issued in the seconda ry offe ri n g, the se a lle g a tio ns are insuf fi c ie nt t o w ith sta

nd a mot ion to dis mis s.
Whi le w e d o n o t b e li e v e p la inti f f s ’ a ll e g a ti o ns are adequate under Iqbal

and Twom bly , we ag ree with plaintiffs that the district court erre d by consideringextrinsi c evide nce when ru l i n g on defe ndants’ motion to dism iss. The district
c ourt su g g e ste d th a t it c ou ld c on sid e r s uc h e vid e nc e be c a us e plaintiffs’ fa ilure to plead the trace ability of their sha

res wo uld de pr ive the m of

“ sta nd ing ,” wh ic h in

tur n w ou ld d e p r i v e t h e c o u rto f

s u b j e c tm at t e r

j u r i s d i c t i o n

. A c c o r d i n g l y, the c ourt a pp e are d to g ra

nt d e fe nd ants ’ m oti on

to d ism iss under Rule 12( b)(1) of the F eder al Rules of Civil P roce dure, rathe r than Rule 12(b) (6).

Di smi ssa l f

or la c k o f s ub

je c t matte r j ur isd ic tio n w ould have be en appr opriate if pla intiffs had not ade quately alleg ed Article I I Istanding

. But that was not the case here . Plaintiffs alleg ed that they

purcha sed shar es whose va lue had be en inflated by materia lly false and misleadingstatements in the J anuar y 2009 prospec tus suppleme nt, and that they suffe red an injury -in-fa ct when the value of those shar es dec lined afte r the truth was re veale d. Plaintiffs suffer ed that alleg ed injury whether their shar es came from the s econda ry offe ring or the pool of p reviously

issued share s, since fa lse or misleading statements in the prospec tus supplement w ould likely “af fec t the price of shar es alre ady issued to almost the same e x tent as those of the same class about to be issued.” Barnes , 373 F.2d
a t 27 1. P laintif

fs ’ a lle g e d in

jur y wa s d ir e c tly

tr a c e a ble toI N R E : C EN TUR Y A L UMI NU M C O

. 11

defe ndants’ conduc t (issuance of the a lle ged l y false a nd misleading prospec tus supplement) and would b e redresse d by the re lief plaintiffs soug ht (an a war d of money

damag es). Nothing mor e wa s neede d to a lleg e Article I I I standing here

. See Steel Co. v

. Citi

zens for a Better Env’ t , 523 U.S. 83, 103 (1998); NECA-IBEW Health & W elfare Fund v. G oldman Sach s & Co. , 6 93 F .3 d 1 45 , 1 58 (2 d Ci r. 20 12 ); Levine v

. AtriCure, Inc. , 594 F. Supp. 2d 471, 476 (S.D.N.Y. 2009)

. Pl a inti f f s ’ f a il u r e to p le a d

th e tr a c e a

b il it y o f th e ir share s means they

lack sta tutor

ysta nd ingun de r § 11 , but f

a ilure to alleg e statutory standing results in failure to state a c laim on which re lief can be gra

nted, not the abse nce of

subject matter jurisdiction. Leeson v. Tra nsamerica Disability Incom e Plan , 6 7 1 F

. 3 d 9 6 9 , 9 7 7

– 7 8 ( 9 t hC i r

. 2 0 12 ); Jewe l v. Nat’l Sec. Agenc y , 673 F.3d 902, 907 n.4 ( 9th Cir. 2011). The district
c ourt sh ou ld t he re fo re ha

ve a dd re sse d d e fe nd ants ’ m oti on to dismiss under Rule 12( b)(6) , not Rule 12(b)(1)

. Notwithstanding this er

ror, we may

aff irm if dismiss al was prope r under

Rule 12(b)(6) , see Harris v. Amgen, I nc. , 57 3 F .3 d 7 28 , 7 32 n. 3 ( 9th Cir . 2 00 9) ; Cetacean C mt y. v. Bu sh , 3 86 F .3 d 1 16 9, 11 72 –7 3 ( 9th Cir . 2 004), and he re it was. Eve n without consideringthe extrinsic e v i dence defe ndants submitted, plaintiffs’ alleg ations fall short of what Iqbal and Twom bly

require for the r easons g iven above . The fac t that mor e than 49 milli on share s of Centu ry Al uminum common stock wer e alr eady in t h e m arke t at the time of the
se c on da ry of fe ri ngwa s n ot a lle g e d in pla int if fs ’ c omp la in t, but it is a fa ct not subject to rea sonable dispute and w as included in the January

2009 prospec tus supplement , which plaintiffs incorpor ated i n to the complaint by ref ere nce. T he district court pro p er l y

took judicial notice of this document and plaintiffs did not contest its acc urac y with respec t to theI N R E : C EN TUR Y A L UMI NU M C O

. 12

number of sha

res outs t anding at the time of the seconda ry offe ring . That fa ct could there fore be considered in resolving defe ndants’ motion under Rule 12(b) (6). See Tellabs, Inc . v. Makor I ssues &Rights, Lt d. , 551 U.S. 308, 322 (2007).

AF F IRMED.